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"An attractive place to invest" Andrew Coyne


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From the National Post:


Andrew Coyne: 'An attractive place to invest.' Are you serious, prime minister?
Trudeau can bend famous ears in Davos, but what do investors see when they look at Canada? They see, first, a foreign trade situation that is rapidly deteriorating

Andrew Coyne
Andrew Coyne
January 22, 2018
9:10 PM EST
Filed under
Full Comment
The prime minister is off to Davos, where we are told he will “champion Canada as an attractive place to invest.” That’s nice to hear, and certainly one wouldn’t want him to suggest he had any doubts on that score. But, er, is it?

The question might strike many Canadians as strange. Isn’t our economy the envy of the western world, growing at a solid (if unspectacular) 3 per cent over the last four quarters? Hasn’t unemployment fallen to its lowest level in 40 years?

But those numbers describe where we’ve been, not where we’re going. To be sure, rebounding oil prices have helped the economy snap back from its mid-decade doldrums. (Though let’s not overstate this. Fun fact: the economy has grown more slowly, on average, over the last two years — roughly 2.2 per cent annually — than over the previous six.) And exports, spurred by a broad-based expansion in the world economy, should help prolong growth in the short term.

But the longer-term outlook is decidedly less rosy — the Finance department projects growth in future decades at just 1.7 per cent per year — and even in the short term the barriers to investment, notwithstanding the prime minister’s optimism, are accumulating. You can only boast about how well our banking sector survived the financial crisis so many times.

As it is, business investment has been a chronic weak point for Canada for years. Though it rebounded somewhat in 2017, it remains well below its 2014 peak, in real terms. At roughly 11 per cent of GDP, it ranks 16th out of 17 OECD countries surveyed in a recent study by former Statistics Canada chief economist Philip Cross, and has flatlined for most of the last two decades.

Worse, investment in machinery and equipment — the kind that leads to increases in productivity — has fallen, from over 6 per cent of GDP in 2000 to just 4 per cent. Want to know why productivity lags in Canada? Business investment per worker in Canada, at roughly $9,300 (in 2010 US dollars), is 40 to 50 per cent less than it is in high-productivity countries like Switzerland, Norway and the United States.

The prime minister can bend famous ears in Davos, but what do investors, foreign or domestic, see when they look at Canada? They see, first of all, a foreign trade situation that is rapidly deteriorating: not only NAFTA, where negotiations, after months of mutual antagonism, are in serious jeopardy of collapse, but the bungling of the Trans Pacific Partnership and China initiatives, with  collateral damage to relations with Japan.

Not long ago, a business could locate in Canada with reasonable prospects of barrier-free access to most of the major markets of the world. Now, even the American border looks more and more like a wall: an investor today will think twice before putting a plant on this side. Much of the blame for that, certainly, can be attached to the Trump administration, but what are we doing to compensate on other fronts?

What, say, of taxes? Much attention has focused on the sharp reduction in U.S. business taxes arising from the recent tax reform: a marginal effective tax rate on capital investment, federal and state combined, of less than 19 per cent, according to calculations by University of Calgary economist Jack Mintz, down from 34.6 per cent. Rather less attention has been paid to the steady rise in the same taxes in Canada, from 17.5 per cent in 2012 to 21 per cent today.

An investor looking at Canada must also reckon with a marginal rate of personal income tax exceeding 50 per cent in much of the country, not only on his own income but those of his top employees. And that’s not including pending increases in Canada Pension Plan levies: not technically taxes, though employers and employees could be forgiven for thinking of them as such, especially when they look at how the CPP investment fund spends their money.

What of government deficits and debt? We’ve grown used to thinking of the federal debt as being under control, but provincial debts have been exploding. At 30 per cent of GDP, net provincial debt is up from 20 per cent a decade ago — this, even before the costs of an aging population have really begun to bite.

The bill for all this fecklessness will be horrendous
And while the fall economic statement showed federal deficits steadily declining over the next few years, a new study by the Institute of Fiscal Studies and Democracy shows them steadily increasing, from $20 billion last year to $32 billion four years from now. The difference? Finance numbers depend upon direct program expenses, which have been growing at 7 per cent annually, suddenly and permanently slowing to a little over 1 per cent.

Add to this the escalating cost of carbon taxes, imposed not as a replacement for existing subsidy and regulatory programs but on top of them; sudden and massive minimum wage hikes in several provinces; skyrocketing electricity prices in Ontario, temporarily suppressed at the cost of still higher prices to come; the increasing impossibility of building pipelines anywhere; and an interprovincial “free trade” agreement that included 167 pages of exceptions.

You can load a great deal onto an economy’s back in good times, but when the bad times come, as they inevitably will — we have not had a recession in nine years, or a serious one in 25 — the bill for all this fecklessness will be horrendous.

Perhaps the executives in attendance at Davos will be reassured by the prime minister’s talk. But I imagine once they get back to their offices and have a fuller briefing, they may say to themselves: are these people serious?

Serious indeed.


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I have already shifted most of my equity investments to US Equity from Canadian.  I do not trust the current market in Canada.



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John Iverson on Trudeau's doubling down at Davros. Ignoring the massive competitive advantages of the huge US internal market and the drop in tax rates, and not paying attention to other changes, such as the high quality Permian Shale the US is now pumping in record numbers is putting our entire economic future at risk.

Even worse is the total ignorance of economics on display at his keynote speech. The analysis offered by Jack Mintz, a tax expert at the University of Calgary is sobering:


John Ivison: Trudeau's Davos Man message can't hold back the flow of capital from private corporations
Capital generally moves across borders to where the most productive investment opportunities exist and where costs are lowest. No amount of hogwash about 'the new age of doing business' is going to change that
John Ivison
January 25, 2018
5:06 PM EST
Filed under
Canadian Politics

The Prime Minister offered a rather curious response last week when I asked him if, in the wake of recent U.S. personal and corporate tax cuts, his government could maintain Canada’s competitiveness.

The real solution, he suggested, is to boost growth by getting more women into the workforce and paying them more. “We’re hurting ourselves by not being values-based in our approach,” he said in our interview.

He repeated broadly the same message this week to a well-heeled business audience in Davos, in a speech that most resembled a Seinfeldian airing of grievances: “I got a lot of problems with you people, and now you’re going to hear about it.”

In his keynote speech at the World Economic Forum, Trudeau said that “too many corporations have put the pursuit of profit before the well-being of their workers … but that approach won’t cut it anymore. We are in the new age of doing business — you need to give back.”

In Trudeau’s Arcadia, profit is a dirty word, replaced as a priority by progressive trade and more generous social spending. Problems of competitiveness are resolved by growth, fuelled entirely by narrowing the gender gap.

The Prime Minister’s intellectual crutch is a report by McKinsey Global Institute that suggests Canada could add $150 billion to its GDP in 2026 if it can raise female participation in the workplace, increase women’s business hours and get more women into high-productivity sectors like technology.

Who needs to match U.S. tax rates when there’s a McKinsey report that says everything will be okay?

That’s not to say there’s nothing to the idea. Tapping into the potential of gender parity should be a no-brainer for all governments.

But it is not a substitute for policies designed to arrest capital flows south.

When interviewed by Bloomberg in Davos, Trudeau’s finance minister, Bill Morneau, was less serene about things.

Canada’s average corporate tax rate is about 27 per cent and the American reductions will lower theirs to about 26 per cent, he said. “We intend to stay competitive. It will have a different impact on different sectors, so we are looking carefully at it.”

Former Liberal minister John Manley, who now heads the Business Council of Canada, said in some ways U.S. tax reform is a bigger challenge to Canadian companies than NAFTA because they have benefitted from a tax advantage for years.

“Regrettably, they are a big market, so we need some advantage otherwise investment tends to flow in their direction,” he told reporters.

Tax expert Jack Mintz, president’s fellow at the University of Calgary School of Public Policy, wrote in the Financial Post Thursday that U.S. tax reform has changed everything — “even if the Prime Minister refuses to believe it.”

Mintz said that pre-2018, companies knew they had a business-tax advantage in Canada and access to the U.S. market through NAFTA.

“Now there’s no certainty that NAFTA access is going to last, while there’s absolute certainty that U.S. tax reform is real, it’s here and its impact has turned Canadian tax competitiveness upside down.”

Large corporations now face higher taxes on investments, higher personal income- and sales-tax rates, and the threat of levies on energy in the form of a carbon tax.

He predicted a loss of businesses and tax revenues, as companies shift corporate profits south.

Mintz advocated a strategy that extends beyond woolly ideas about increasing female pay and participation.

Do we want to live in a world where the wealthy hide in their gated enclaves, while those around them struggle?
He suggested cancelling Morneau’s small business tax plan; lowering personal taxes by increasing the threshold for tax brackets (the top rate kicks in at US $500,000 in the States and at US $165,000 in Canada); and reducing federal and provincial corporate income tax rates by two points each to create a 23-per-cent rate that could compete with low-tax U.S. states like Ohio, Washington and Texas.

This is all totally at odds with Trudeau’s Davos Man message: “Do we want to live in a world where the wealthy hide in their gated enclaves, while those around them struggle?” he asked audience members paying $85,000 a head to stay in the world’s most opulent gated enclave for the week.

But as Mintz pointed out in reference to Morneau’s plan to go after controlled private corporations, “the rich may be the ones holding most passive assets but their capital is fuel for new businesses.” Rising concentrations of wealth are a political problem but they are scarcely eased by making everyone poorer.

In Davos, Trudeau took ownership for the booming economy in 2017, saying the tax on wealthier Canadians and the boost in social spending on the child care benefit resulted in the best growth rate in the G7 and the lowest unemployment in 40 years.

Most economists would debate that direct linkage. While increased spending may have provided some support, Canada’s performance was more influenced by economics than policy, with a growing global economy, stabilizing energy prices and renewed consumer and business confidence all playing their part.

But if the Liberals are taking credit for the boom, they will surely be blamed for any bust that occurs if investors vote with their feet.

Capital generally moves across borders to where the most productive investment opportunities exist and where costs are lowest.

No amount of hogwash about “the new age of doing business” is going to change that.

• Email: jivison@nationalpost.com | Twitter:


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Jack Mintz with a fuller analysis of what Canada actually needs to do to remain competitive in the face of US tax reform:


Jack Mintz: If Trudeau ever accepts reality, here’s how he can save Canada’s competitiveness
Jack Mintz: If Canada fails to respond to America’s resurgent competitiveness, it’s at our peril. The old rules no longer apply

U.S. tax reform is real, it’s here, and its impact has turned Canadian tax competitiveness upside down, writes Jack Mintz.Getty/ Thinkstock
Jack M. Mintz
January 25, 2018
7:53 AM EST
Last Updated
January 25, 2018
8:05 AM EST
Filed under
FP Comment

U.S. tax reform has changed everything — even if the prime minister refuses to believe it. Justin Trudeau evidently missed the news that companies in the U.S. have been using the sudden shift to lower corporate taxes to shower bonuses and raises on workers, and plowing yet more investment into new productivity and growth. In his speech to the World Economic Forum in Davos Tuesday, Trudeau offered his own ill-informed approach, saying he would refuse to try competing with U.S. business tax cuts because “People have been taken advantage of, losing their jobs and their livelihoods … (as) companies avoid taxes and boost record profits with one hand, while slashing benefits with the other.”

This is no time for clapped-out anti-corporate cant. If Canada fails to respond to America’s resurgent competitiveness, it’s at our peril. The old rules no longer apply. Pre-2018, companies looking to invest in North America knew they had a business tax advantage in Canada, even though it suffered from having smaller market than the U.S., a weaker labour pool and colder climate. With NAFTA, businesses operating in Canada could also count on decent access to the U.S. market, despite all the border frictions that come from dealing with two different regulatory systems.

Now, there’s no certainty that NAFTA access is going to last, while there’s absolute certainty that U.S. tax reform is real, it’s here, and its impact has turned Canadian tax competitiveness upside down. Our recent lower-tax advantage has become a higher-tax handicap.

Our recent lower-tax advantage has become a higher-tax handicap
We now tax large corporate investments by about 10-per-cent more compared to the U.S. Our personal income and sales taxes are higher. And we’re increasing levies on energy, which was already being taxed higher than in the U.S. Small- and medium-sized business owners in the U.S. will be paying lower taxes than ours by a wide margin. 

We aren’t just about to lose a whole lot of business. Our governments can expect to see revenues take a long slide. Tax reform turned already competitive corporate tax rates in states like Ohio, Washington and Texas into a much better deal than what Canada offers, which will encourage companies to shift corporate profits south.

Limits in the U.S. on deducting interest costs as well as loss limitations will encourage multinationals to shift costs out of the U.S., relocating deductions to Canada. And we’ll see American-owned companies start transferring money from Canada to U.S. headquarters. They’d rather use it down there to pay down debt, reinvest in the U.S., buy back shares, and — as companies from Apple to Walmart have already begun doing — raise wages to compete in the tight American labour market.

Canada was already suffering from lacklustre investment before U.S. tax reform came along
What should Canada’s governments do? So far, they’ve been ignoring their new and sudden lack of competitiveness, but that’s no strategy. As the Economic Advisory Council convened by Finance Minister Bill Morneau reported last year, Canada was already suffering from lacklustre investment before U.S. tax reform came along.

Step One: Put a halt to planned but ill-advised tax hikes, such as Morneau’s planned squeeze on small businesses operating as Canadian controlled private corporations, which will damage private equity and venture capital markets. The rich may be the ones holding most passive assets but their capital is fuel for new businesses. Instead of raising taxes on entrepreneurs — who might already be tempted to move to the U.S., the U.K., or other jurisdictions with lower personal tax rates — we should look at removing tax disadvantages, not increasing them.

Step Two: Lower personal taxes by raising the threshold for tax brackets. The top rate in the United States applies at US$500,000 (for individuals) or US$600,000 (for couples). In Canada, the highest rate kicks in at a measly US$165,000. And there should be no one paying more than 50 per cent, as there is now, whether it’s top earners or low-income Canadians whacked by high marginal rates from income-tested benefits and personal taxes as they’re trying to get ahead.

Both federal and provincial corporate income tax rates should be reduced by two points each
Step Three: To ensure Canada remains attractive for business investments, both federal and provincial corporate income tax rates should be reduced by two points each so that Canada’s corporate income tax rate at 23 per cent would be close to even low-tax U.S. states. Some of the lost revenue could be made up by dumping pointless incentives — a recent paper by John Lester at Calgary’s School of Public Policy calculated that there are billions of dollars in subsidies that do more harm than good among the four biggest provinces and at the federal level.

Canada also has relatively weak thin-capitalization rules that make it easy for companies to dump debt into Canada. We could further tighten up on these given that the new U.S. rules discourage debt financing. Other countries like Australia have developed approaches we should consider.

Step Four: If we’re feeling really bold, we can shift from income-based taxes to consumption-based levies. Removing income taxes on savings would help liberate stock and bond markets. Making greater use of GST/HST is sensible as a replacement for high marginal personal tax rates.

Step Five: Get the provinces into the act. Their land-transfer taxes are highly distortionary and impossible to apply properly on hard-to-define commercial property purchasers. Some provinces should look to adopt a sales tax harmonized with the GST to remove taxes on capital and intermediate purchases. Alberta can create a whole new Alberta tax advantage by slashing income taxes and replacing them instead with a provincial sales tax. (Or at least use revenues from the carbon-tax grab to lower personal taxes — or to lower corporate taxes, giving back to businesses who have lost competitiveness due to the government’s imposed higher energy costs.)

These are all smart tax policy ideas regardless of what the rest of the world is doing. But now that the U.S. has completely flipped the competitiveness equation with its tax-reform bombshell, they sound smarter than ever. And they’re certainly a better plan than sitting on our hands and watching businesses and tax revenue drain away to Donald Trump’s U.S.A.

Jack Mintz is president’s fellow at the University of Calgary School of Public Policy.